Improving production, reducing production costs, automating all processes, optimizing the structure of enterprises - all this is an important condition for the development of modern business. What can best make enterprises do all of this? Only the market.
Market refers to the competition that occurs between enterprises that produce or sell similar goods. If there is a high level of healthy competition, then to exist in such a market it is necessary to constantly improve the quality of the goods and reduce the level of overall costs.
The concept of perfect competition
Perfect competition, examples of which are given in the article, is the exact opposite of monopoly. That is, this is such a market in which there is an unlimited number of sellers who deal in the same or similar goods and at the same time can not affect its price.
In this case, the state should not influence the market or engage in its full regulation, since this can affect the number of sellers, as well as the volume of products on the market, which is immediately displayed on the price per unit of goods.
Despite the seemingly ideal conditions for doing business, many experts are inclined to believe that in real conditions, perfect competition will not be able to exist for a long time. Examples that confirm their words have happened repeatedly in history. As a result, the market became either an oligopoly, or some other form of imperfect competition.
Perfect competition can lead to decline
This is due to the fact that in the long term, a decline in prices is constantly observed. And if the human resource in the world is large, then the technological one is very limited. And sooner or later, enterprises will switch to the fact that all fixed assets and all production processes will be modernized, and the price will still fall due to attempts by competitors to conquer a larger market.
And this will already lead to functioning on the verge of the breakeven point or below it. It will be possible to save the situation only by influence outside the market.
The main features of perfect competition
We can distinguish the following features that a perfect competition market should have:
- A large number of sellers or manufacturers of products. That is, all the demand that is on the market must be covered by more than one or several enterprises, as in the case of monopoly and oligopoly;
- products in such a market should be either homogeneous or interchangeable. It is understood that sellers or manufacturers produce such a product that can be completely replaced by the products of other market participants;
- prices are set only by market means and depend on supply and demand. Neither the state nor specific sellers or manufacturers should influence pricing. The price of goods should be determined by the cost of production, the level of demand, as well as supply;
- There should be no barriers to entry or entry into the market of perfect competition. Examples can be very different from the sphere of small business, where special requirements are not created and special licenses are not needed: ateliers, shoe repair services, etc.;
- There should be no other external market influences.
Perfect competition is extremely rare
In the real world, examples of perfect competition firms cannot be given, as there is simply no market that operates according to such rules. There are segments that are as close as possible to its conditions.
To find such examples, it is necessary to find those markets in which small business mainly operates. If any company can enter the market where it operates, and it is also easy to exit it, then this is a sign of such competition.
Examples of perfect and imperfect competition
If we talk about imperfect competition, then its monopolistic markets are its bright representative. Enterprises that operate in such conditions have no incentive to develop and improve.
In addition, they produce such goods and provide services that cannot be replaced with any other products. This explains the poorly controlled price level set by the non-market way. An example of such a market can be called a whole sector of the economy - the oil and gas industry, and Gazprom is a monopolist.
An example of a perfect competition market is the field of car repair services. There are a lot of different service stations and car repair shops both in the city and in other settlements. The type and amount of work performed is almost the same everywhere.
It is impossible to artificially raise the price of goods in the legal field if perfect competition is observed in the market. Everyone has seen examples confirming this statement in his life more than once in the ordinary market. If one seller of vegetables raised the price of tomatoes by 10 rubles, despite the fact that their quality is the same as that of competitors, then buyers will stop buying from him.
If in a monopoly a monopolist can influence the price by increasing or decreasing the supply, then in this case such methods are not suitable.
With perfect competition, you can’t raise the price yourself, as a monopolist can do
Due to the large number of competitors, it is simply impossible to increase the price, since all customers will simply switch to purchasing the corresponding goods from other enterprises. So, the company may lose its market share, which will entail irreversible consequences.
In addition, in such markets there is a decrease in prices for goods by individual sellers. This is happening in an attempt to “regain” new market shares to increase revenue.
And in order to reduce prices, it is necessary to spend less raw materials and other resources on the production of one unit of output. Such changes are possible only due to the introduction of new technologies, optimization of production and other processes that can reduce the level of costs of doing business.
